We live in an age where consumer payments are settled across platforms nearly instantaneously.
But it’s also the same age where payments frictions are evident up and down supply chains. Truck drivers are stuck waiting 60 to 90 days after delivery to get paid. The back-office operations are anything but efficient, as phone calls wend their way back and forth across parties before a check is sent or a card payment initiated.
As part of the recent Freightwaves/PYMNTS event “Supply Chain Meets FinTech,” Melissa Forman, president of TriumphPay, Anne Reinke, president and CEO of Transportation Intermediaries Association, and Mark Baxa, president and CEO of Council of Supply Chain Management Professionals (CSCM) talked about the need to “overhaul the entire post-load segment of the supply chain.”
The Vicious Cycle of Friction
It’s not a news flash that the pandemic has shown a spotlight on the daily difficulties that truckers face in making sure that we get everything delivered to our homes. But less well known is that the real friction starts before the rubber meets the road — when shipper payments begin to make their way across various intermediaries in the space.
And no one is immune from feeling the friction, or the pressure.
Baxa said shippers face their own pressures, chiefly in sourcing goods in the first place. Cash preservation has become part of their business model, he emphasized, where the sourcing team represents between 40% to 60% of the total top line. Not surprisingly, the standard practice has been to collect payment early, and to pay out late — to extend payment terms.
The ripple effects are felt, immediately, by the carriers, who must fund operating costs out of pocket as they wait for payment from the shipper. Shockingly, Baxa said, carrier payment terms can sometimes exceed 120 or more days.
Being the Shipper of Choice
In the current environment, he said, shippers want to become the “shipper of choice” for those carriers — the vast majority of them small outfits with fewer than five trucks to create predictability of supply. Early payment — where early is all relative — to those carriers is one lever that shippers now realize they can use to bolster that relationship.
Making that happen often means connecting with financial partners and platforms that can offer financing or early terms, often at a cost.
“A smart shipper’s going to look for other ways to build strategic partnerships with carrier,” said Baxa. “There’s still a way to go in this area, and there is a real opportunity to advance, from a [payments] innovation perspective.”
Reinke remarked that in the middle of it all stands the broker, who have historically had to bear the risk of supply chains, front-loading the payments to the carriers within 15 to 30 days. The brokers can act as a “bridge” between the shippers and the carriers, ensuring they are all speaking the same financial language. Improved payments processes and flows she said helps the carriers defray the daily cost of doing business. The cost of doing business can be shared among the shippers, the carriers and the brokers with the aid of shared data and embedded payments.
Against that backdrop, platforms, TriumphPay among them, have sought to build efficiency in the processes that reduce shipper dependencies on manual overrides and interventions in connecting loads to payments. Automated workflows create value in several ways: the data transparency for shippers and carriers for tracking transactions, a more streamlined and secure process across the ecosystem and the sharing of data.
Baxa and Reinke noted that the platform model can make sure the data sharing can happen more quickly, without parties having to change their underlying infrastructure or ripping and replacing ERP systems to do so.
“The data sharing and the data transparency is where we are all aspirational,” said Reinke, “but the devil is always in the details.” The optimal system, she believes, is one that serves up a fluid set of payments processes with all of the records and proofs sent to all parties along the way, detailing the loads shipped, the loads received, the transactions made.
“We win when several minds come together and we create something that nobody’s done before…and we create a new alternative,” said Reinke.
(More information about the “Supply Chain Meets FinTech” confab between Freightwaves and PYMNTS, which featured keynote by Distinguished Professor Emeritus Vaclav Smil and speakers including David Messenger from Lian Lian, Zvi Schreiber from Freightos and Mark Levalle from X Delivery, can be found here.)